TotalCare Life offers, according to RR, one dollar per hour of engine flight (EFH) for the duration of an airline operating an engine. The agreement includes basic services such as off-wing maintenance and wing availability, ground aircraft assistance (AOG) and other optional services. «Payments are also the subject of commercial negotiations and can be very advantageous for the first operator of the aircraft (and therefore its installed engines),» explains Olga Razzhivina, senior ISTAT Appraisation at Orvaluations. In the case of a fixed-price contract, the buyer pays a fixed fee to the supplier to acquire the necessary parts and assistance services. With a cost-plus contract, the supplier repairs the product and charges the buyer the full fee, plus a premium. According to the Wharton report, the vast majority of service contracts in the defence industry include more cost payments. However, it is common knowledge that there are inherent deficiencies in incentives and costs when the service is offered under a cost-plus contract or fixed price. As Netessine pointed out at the last forum, a fixed-price contract represents all the risk to the supplier, but offers little incentive to perform. On the other hand, the cost-plus contract effectively shares the risks between the customer and the supplier, but has little or no incentive for the supplier to reduce costs. «What is the value of the supplier in repairing this product at the lowest cost? Everything is refunded,» Netessine said. I would inflate my cost as much as possible if my profit margin depended on it. There is no incentive to do it in the most cost-effective way, and that is a problem. Fill the shoes of a failing tenant. «The new insurance fee structure not only binds the lessor to the OEM when the tenant is late, but usually requires tenants to send engines to an OEM store to do the work,» Koppers agrees.
«The tenant will enter into a separate agreement with the OEM which, depending on the operator`s preference, can take the form of different types of contracts. But what they can`t choose is their supplier and most often the type of maintenance and work the engine receives. It seems that if OEMs begin to respond to feedback from the use of Total Care, they are reluctant to expand support networks.